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Over the past year, the number of countries on an Organization for Economic Cooperation and Development "gray list" of tax havens that have not fully implemented internationally agreed upon tax standards has dropped to 17 from more than 40.

The OECD hails this as progress in a campaign to stamp out untaxed and illicit cash flows across the world, but critics say that the compliance bar was set far too low.

The stakes are certainly high, as the signing of bilateral Tax Information Exchange Agreements (TIEA) is the centerpiece of OECD and G20 efforts to crack down on tax havens.

The amount of money in tax havens has been estimated at $11.5 trillion by the Tax Justice Network, a respected and independent advocacy group that monitors such trends.

Spurred by public outrage over bonus-earning bankers and frauds by wealthy financiers, G20 leaders launched a campaign in April 2009 to name and shame tax havens and penalize those who failed to tighten standards and transparency.

But some say the havens are getting off lightly, and that it is more or less business as usual.

For starters, they say the number of TIEAs a country needs to sign to get off the "gray list" list is far too low at 12. In addition, the countries tax havens sign with may have little money moving offshore.

Take the example of the Bahamas, a balmy Atlantic archipelago and international financial center that is home to more than 250 licensed bank and trust companies.

It moved off the OECD "gray list" in March after signing 18 TIEAs, surpassing the 12 required bilateral agreements. These included TIEAs with the "Nordic Seven," which include Sweden and Norway, but also Greenland and the Faroes Islands.

"Among the 'Nordic Seven' are Greenland and the Faroes Islands. Not many people there will have bank accounts in the Bahamas, compared to Latin American countries that are really suffering from capital flight," said David Spencer, an attorney in New York who has written extensively on international taxes.

The 18 agreements signed by the Bahamas included few countries suffering from excessive capital flight. Brazil is not included, nor any single African state.

And inking TIEAs with the "Nordic Seven," who typically sign onto such agreements collectively, allows a country to get more than half way toward their 12 in one fell swoop.

"MOVEMENT IN RIGHT DIRECTION"

Nudging countries to move from this list has been touted as an important development in bringing much-needed financial transparency to the opaque world of tax havens and capital flight from poor countries.

The OECD refers to the process and categories as a "progress report" and contends that the process has to start somewhere.

"We needed to start with something objective, if you have no agreement you have not started the process," said Pascal Saint-Amans, head of the Global Forum Secretariat at the OECD.

Critics concede that some progress has been made.

"This does represent a movement in the right direction. Once you start the ball rolling, the OECD could raise it to 40 agreements. These countries have agreed to waive bank secrecy in tax matters in at least some cases," Spencer said.

"Developments in international tax law move slowly."

Some activists say this is intentional, arguing that financial interests in the developed world benefit from capital flows from less developed regions.

"To be blunt, countries like the United Kingdom, USA and Luxemburg, are very heavily reliant upon inflows of capital from the South such as Latin America or Africa. By and large, we turn a blind eye to the origins of that capital," said John Christensen, London-based director of the Tax Justice Network.

"The majority of the tax havens in the Caribbean act as conduits for capital, they are rungs on the ladder for illicit financial flows from South to North," he said.

INFORMATION "ON REQUEST"

And this role had been etched into their historical DNA.

"If you look at the history of the development of tax havens you will find that over half of them were linked to what was the British Empire and then during the period of decolonization, successive British governments actively encouraged them to become tax havens because they would act as conduits for capital flows toward London," Christensen said.

Funds traced to one man accused of being a Ponzi schemer, Texas billionaire Allen Stanford, who is awaiting trial for allegedly operating a $7 billion fraud from his offshore bank in Antigua, have been found in the Britain, Switzerland and Canada.

The TIEAs also provide a framework for exchanging information upon request, which is not the same as an automatic exchange of information. For one thing, the requesting government -- say, Greenland -- would need to know about the foreign bank account in the first place.

"The problem is that you have to know what you are looking for before you ask for it. 'On request' is not the international standard, though the OECD claims that it is," said Nicholas Shaxson, a Swiss-based researcher.

The OECD says that not long ago, governments did not even have this power at their disposal.

"This is a criticism we are accustomed to ... We agree that automatic exchange is more efficient. But it now allows tax administrations to make these requests where before they were deprived of any means (of doing so)," said Saint-Amans.

Several Caribbean leaders have condemned the OECD tax standards as "discriminatory," arguing that some financial centers in the United States and Europe are also less than transparent, but have not been subjected to the same scrutiny as many of the Caribbean territories that have been singled out.

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